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Tale of Two Loan Programs

U.S. Funds Targeted for Small Business Instead Used by Banks to Repay TARP

By

Emily Maltby And

Angus Loten

Updated Oct. 20, 2011 10:41 a.m. ET

More than half of $4 billion in federal funds disbursed this year to spur small-business lending by community banks was used to repay bailout funds that the banks received under the government's Troubled Asset Relief Program.

The Small Business Lending Fund was meant to raise capital at smaller banks, which tend to lend more heavily to small businesses, in the hopes of jump-starting growth and employment. But instead of directly lending to small businesses, many of the banks used the money to rid themselves of higher-cost TARP...